I wish I had more of a handle on what industry is doing in the U.S. Sad fact is, I fell behind years ago, and now I’m trying to catch up. Looks like there’s less to catch up to, at least.

Hope all is well…

…BTW: Long time, no see your screenname — and wow, do you belong on THIS thread!!

(…)
This, in turn, means it would literally be easier to square a circle, or maybe invent a perpetual motion machine, than to devise a plan that a.) lifts Big Shitpile off the balance sheets of the banks, while at the same time leaving them b.) solvent and c.) in the hands of private investors, without d.) constituting a flat-out transfer of wealth from taxpayers to bank shareholders.

These are simply not realistic policy objectives – in fact, they are mutually exclusive, as even Alan Greenspan now seems prepared to admit.

So when Geithner talks about harnessing the power of private capital to “start” a market for Big Shitpile – by coaxing hedge funds and other bottom feeders into offering bids that banks teetering on the edge of insolvency just might be willing to accept – he’s not fooling himself, although he may be trying to fool us.

(…)

But to understand why Big Shitpile is just that – with hardly any ponies hidden at the bottom for eager prospectors to dig up – it worth taking a look at how the stinking heap was created in the first place. As it turns out, I’ve been spending much of my professional time lately studying what happened in the credit markets during the bubble years, so I think I have a slightly better grasp than I did at the time, when I only thought it would lead to a nasty financial crisis, as opposed to Great Depression II.

The broad story is well known, even to the cable TV pinheads: Housing Bubble + Subprime Mortgage Lending + Derivatives = Armageddon. (The numerical illiterates at Fox News would probably add ACORN to that equation.) But even now I’m not sure if many people fully understand just how insanely reckless the carnival was, to the point where future historians will speak of “structured finance” in much the same the way we talk about the bubonic plague.

(…)

The incentives being what they were, it was only a matter of time before Wall Street started applying the same techniques to credit risk – putting the financial system firmly on its collision course with a black hole.

The new idea was that collateralized vehicles could be created that would mimic the capital structure of a real company. That is, on one side of the balance sheet would be the assets (mortgages, junk bonds, corporate loans) held by the vehicle, and on the other side would be the liabilities – securities sold to investors to finance the purchase of the assets. These securities would also be tranched, except this time the tranches might carry differing degrees of exposure to both interest rate risk and default risk. The whole convoluted structure would then be balanced on a teeny tiny sliver of capital, which, if everything went according to plan, would pay fat “equity-like” returns (the Holy Grail of the fixed income world).

And so was born the collateralized debt obligation, or CDO, to be followed by its twin brother, the collateralized loan obligation, or CLO – the main difference between them being that CDOs tended to buy mortgage debt while CLOs specialized in corporate loans, especially those made by banks to finance leveraged buyouts deals.

(…)

So here we are: The banks are sitting on paper originally valued at 100 cents on the dollar (or even more) which is now worth 20 or 10 or 0 cents. If they sell the stuff at those prices, most of the capital they’ve put behind those assets will be erased, leaving them insolvent, technically and perhaps literally – as in, unable to cover their current liabilities. On the other hand, if they don’t sell their pieces of Big Shitpile, all their capital (including what Uncle Sam has already thrown into the till) will remain frozen in place, blocking them from doing any new lending. Without new lending, they can’t earn the profits they need to make good the losses they are sitting on. Zombies. Night of the Living Dead Banks.

(…)

One of the things that creeps me out about the political system’s response to the crisis so far – the insolvency of the banking system in particular – are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama’s financial team really pressed from exactly the same Wall Street mold?

Highly recommended read, I’d encourage all to consider his premises… IMO, Billmon’s as close to accurate summary of things as I’ve seen anywhere.

Earlier this week, the Federal Reserve released the minutes of the most recent meeting of its open market committee — the group that sets interest rates. Most press reports focused either on the Fed’s downgrade of the near-term outlook or on its adoption of a long-run 2 percent inflation target.

ut my eye was caught by the following chilling passage (yes, things are so bad that the summarized musings of central bankers can keep you up at night): “All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment and by an appropriate rate of inflation.”

So people at the Fed are troubled by the same question I’ve been obsessing on lately: What’s supposed to end this slump? No doubt this, too, shall pass — but how, and when?

(…)

Now we’re in the midst of a crisis that bears an eerie, troubling resemblance to the onset of the Depression; interest rates are already near zero, and still the economy plunges. How and when will it all end?

To be sure, the Obama administration is taking action to help the economy, but it’s trying to mitigate the slump, not end it. The stimulus bill, on the administration’s own estimates, will limit the rise in unemployment but fall far short of restoring full employment. The housing plan announced this week looks good in the sense that it will help many homeowners, but it won’t spur a new housing boom.

What, then, will actually end the slump?

(…)

Well, the Great Depression did eventually come to an end, but that was thanks to an enormous war, something we’d rather not emulate. The slump that followed Japan’s “bubble economy” also eventually ended, but only after a lost decade. And when Japan finally did start to experience some solid growth, it was thanks to an export boom, which was in turn made possible by vigorous growth in the rest of the world — not an experience anyone can repeat when the whole world is in a slump.

Personally, I think he’s pointing to (w/out defining) the discussion we need to be having. And by implication, the answers to questions he ask are the same as I (and many, many others in the wilderness) have been screaming for Obama to address: what is most usefull (productive) target of Fed Gov $$ to invest in? What human economic activity can our nation direct itself towards that addresses the very historically unique challenges of our time?

And just in case it needs saying bmaz, I’m not trying to pick a fight (hope you don’t think that). Just seems awful clear to me that we aren’t having meaningful discussions on what matters. The rapidity w/which economy here (US) and worldwide is failing is a cascade, and it’s all happening in rear view mirror… just as affects of BushCo’s 8 yr. crime spree is hitting the collective realities of nearly everyone’s standard of living & work opportunities.

Our cultural problem is immense. The public discussions most people rely upon (TV, local news papers) are not even close to being in a domain of accurate accounting of our realities. Our paper’s only syndicated “econ” guy is Robert Samuelson.

In recent printings of his opinions, this idiot submits arguments pro & con around Shawn Hannity’s take on causes & relevance of Japan’s “lost decade” to Obama’s challenges. Shawn fucking Hannity… world economic guru.

Or Samuelson’s summary of what got us to the brink:

What the United States needs is export-led growth. The rub is that many other countries want that, too. Just as large U.S. trade deficits signified American overspending, large trade surpluses in China, Japan and other Asian countries signified their oversaving.

So China saved to much, and we spent all that savings they loaned us w/no means to pay it back ’cause we shipped our manufacturing sector (and much more) over there for a quick buck.

This is the stuff US public gets to chew on as means to understand their $$ woes. And what has Obama had to say to correct this kind’a crap?… or to establish a factual record of how we got here to, at minimum, counterweight beyond absurd GOP memes of “fiscal responsability” representatives? Anything at all… did I miss it?

It’s really quite depressing.

(econ meltdown)… was not random. It was predictable and predicted. If we just muddle through this current meltdown—spend a lot of money bailing out the banks, throw some stimulus around—and don’t fix the fundamentally flawed incentives and structures of the system, it will likely happen again.

to your comment:

Ian was discussing the financial sector, but it strikes me that the same applies for America’s industrial and manufacturing sector. The United States was built on the backs of hard working people that planted and built things, sweated, toiled and prevailed. In the post-modern hustle and flow of the digital and financial whiz bang world, we seem to both forget and neglect the industry, manufacturing and workers that put us here. I want to focus, and open a discussion, on that.

… is a leap over…
* entire systemic dysfunctioning of gov institutions
* banking ineptitude, misdirected purposes, and in many cases outright fraud
* massively fraudulent investment houses… eg: the trustees of managing more or less collective accumulated $$ of everyone else’s labor… poof, up in smoke, gone.
* accounting firms & practices supporting & enabling all of the above
* media… MSM but even more impactful, financial… utterly misrepresenting practically everything along the way that got us here.
* corruption of near incomprehensible breadth:: k-street pass-through-bot approval of “laws” by bought and paid for prez/congress, handing keys of gov institutions and perverting their purposes from protecting citizens to facilitating fraud
* “shareholder” influence to produce earnings over quality product, to the extent that fraud is nearly guaranteed component to realize desired earnings (and it’s all alchemy)
* management making decisions benefiting management vs. health of the enterprise and viability of same’s product
* after initial round of GM bailout discussions late last year where “industrial policy” issues came to the forefront, they’ve now entirely slid off the radar (at least in DC), replaced by TARP, $T bailouts etc.

… bypassing all this simply as reference to “financial sector” is kind’a like referring to the ocean’s as a bit of water.

Summarizing Ian’s expressed concern: in essence, Obama has sent myriad signals belying an un-stated policy which put’s Wall Street 1st… above all else. Instead of digging out the rot which precipitated/facilitated our slide, BO has apparently chosen to “bet the bank” the same folks who stole very substantial proportions of America’s (and the world’s) wealth can/will fix the problem.

Again, with all due respect, we had the GM bailout debate… people said what they had to say, and GM got what it wanted. They’ve had huge layoffs since, closed several factories and furloughed several others, and now asking for another large round of fed $$ to get ‘em through.

Whatever one’s POV on this, sure seems evident at this point that our problems/challenges far more systemic than helping Detroit… seems obvious that, at best, guaranteeing GM’s survival is a component of US economy that will play a part in things only after a recovery begins… if such a recovery begins.

For me, it’s quite frustrating to see much of blogosphere’s Progressive best so reluctant to expand their context so that larger mechanisms of US (and really now, world) economy as a whole are considered. We (US) really don’t have functioning institutions capable of doing what’s needed to ensure that, should things start to get turned around, the same o’le players don’t stick their buckets in the cash spigots and do what they’ve done under Bush years.

Sure seems clear at this point that whether GM gets more $$ or whatever happens longterm w/them, their contribution to any kind of recovery is ancillary. The trillions spent in TARP and now BO’s programs… there’s not that much left in the well to tap. Neither program has hit any bull’s eyes, nor has (as Ian says) any of systemic (eg: “built in”) built in fraud mechanisms been uprooted.

I read comments here, people talking about universal HC and such… really folks, honest to geebeezus, we’re laying off teachers and fireman all over the US. Obama’s gon’a lower mortgage payments for millions… fine, but this all further drains those dwindling retirement funds across America that already are faultering because…
* declining wages & unemployment are dwindling contributions
* US investment producing, after inflation, negative returns
* the capitol in those funds further eroded every time one of “securities” said fund’s invested in is further devalued. EG: if value of mortgage is lowered, that money is taken out of someone’s bank account somewhere.

Who you kidding? There’s no money for federal funding/subsidizing of HC for the masses at all, not even close. If anything, unless all this other fundamental stuff get’s fixed, the more likely outcome is default on, in order:
* Medicaid
* Medicare
* Soc Sec
“Conservatives” have already started ramping up efforts to do just this, arguing “entitlements” are cause of our econ woes. And given massively mis-informed US public, selling this notion seems very doable to me. William Greider (The Nation) writes about this (although mis-stating several facts IMO), his focus on Peter G. Peterson’s efforts is accurate: I’ve heard Peterson pitch exactly what Greider suggests at UNM Law School sponsored Federalist Society events twice since last October. Listening and seeing the room full of young republicans applaud this stuff sends a chill down my spine.

Applauding and supporting unions for their own sake just isn’t enough. In this environment, we need a labor force that’s smart and educated… that understands the environment and understands what needs to be done. I am all for labor getting it’s fair share, but I would hope a good portion of that pool understands how to evaluate and choose the efficacy of endeavor(s) it is laboring to further.

As it is now, given what BO had done so far and appears committed to… he may throw a few sops to unions here and there, but he’s allowed control of everything that determine’s labor’s fate to remain in the hands of hucksters who don’t give a rip about labor whatsoever. If these fuckers find another cheap labor pool in jungles of Borneo, the won’t hesitate to ship manufacturing of their products there at expense of everything else they’ve forgone doing this exact same thing the last 8+ years.a

We need some major “change” that hasn’t yet begun. We need transformations in labor’s awareness, knowledge and purpose and an economic system that recognizes them fairly & equitably, just as it does all the rest of economic participants. This reform hasn’t begun, nor I have seen any signals there is an intent to do so.

The first link at my #76 gets you to the program, ‘Amid Global Economic Slump, Trade Policies Carry New Clout’. Click on Livestream. The Hanes segment is the second part.

Hanes is/has opened 5 new factories overseas – 2 in VietNam, 2 in Thailand, 1 in China. Hanes has closed 30 plants, putting 19,000 workers out of jobs in USA and S America.

The Hanesbrand spokesman on the program is Richard Noll, CEO of Hanesbrand, Inc.

Link to pbs newshour program on Hanesbrand Inc move to Asia

Last night’s PBS news hour had a clip on the Hanes underwear manufacturing plant in Viet Nam. The average take-home pay for workers, mostly seamstresses, is equivalent to $80.00 per month. The minimum take-home pay per month is $50.00 (about 26 cents per hour). Work week is 6 days of 8 hours each.

The spokesman for the Vietnam factory stated the plant is “close to their fabric supply in China”.

This news segment also switched to the former Hanes factory in NC. Part of their plant buildings is now a counseling office for the unemployed. We all know that the textile industry was large in NC for about 100 years – gone to China.

As long as the corporate CEOs, managers, and shareholders tolerate the use abuse of slave labor, there is no hope that I can see for the many in America who make up the ‘laboring class’.

Fortunately I can sew and have a roomful of fabric made in America. I’ll read all labels and purchase only those made in USA. A real move to boycott Hanes could shut them down!

I’ll also send a letter to that SOB spokesman for Hanes who gave his oily justification for moving the Hanes factory to Vietnam. He and his ilk should be deported.

Didn’t you take that course?

“If taxpayers are complaining now, wait until the pension obligations are swapped over — it will cost a lot more than the $39 billion the automakers are asking for now,” she said. “So in any scenario, it’s not as if the taxpayer’s going to get away with this scot-free. With so many workers losing their jobs there would be a lot of federal aid required.”

The costs they’re referring to are obligations. The government has to pay them. In contrast, the aid that the auto companies are asking for are loans. Assuming the companies survive, those loans will be paid back. Little, if any, cost will be borne by the taxpayers in the long run.

Thus, if you look at the potential expenses over a couple of decades, it’s nothing if we successfully bail out GM and Chrysler, versus tens of billions of dollars, maybe more, if we don’t.

I’d love it if some day I saw someone besides me mention this.

P.S. All whining aside, bmaz, you make good points.